VAT and Income Taxing Condominium Corporations in the Philippines: A Critical Analysis of BIR Revenue Memorandum Circular No. 65-2012 and 9-2013

Abstract

On October 31, 2012, the Commissioner on Internal Revenue issued Revenue Memorandum Circular No. 65-2012 (“RMC 65-2012”) declaring that all dues, membership fees, and other assessment/charges collected by condominium corporations shall now constitute income payments or compensation for beneficial services it provides to its members and tenants, for income tax purposes. Moreover, dues, membership fees and other assessment/charges collected by a condominium corporation shall be subject to value added tax since they constitute income payments or compensation for the beneficial services it provides to its members and tenants. Further, Revenue Memorandum Circular No. 9-2013 (“RMC 9-2013) also declared the taxability of dues, membership fees and other assessment/charges collected by homeowner’s associations from its homeowners and other entities despite its tax exemption privilege under Section 18 of R.A. No. 9904, also known as the Magna Carta for Homeowner’s and Homeowner’s Association. The Memorandum Circular shall now impose a value added tax (VAT), percentage tax and income tax on such dues, membership fees and other assessment/charges collected by homeowner’s associations from its homeowners. There is however a creative way for the homeowner’s to be exempted from the directive of the Bureau of Internal Revenue from payment of income tax, value added tax and percentage tax. The conditions are as follows: 1) The homeowners’ must be a duly constituted association as defined under Section 3(b) of RA 9904; 2) The local government unit having jurisdiction over the homeowners’ must issue a certification identifying the services being rendered by the homeowners’ and therein stating its lack of resources to render such services notwithstanding its clear mandate under applicable laws, rules and regulations. Provided further, that such services must fall within the purview of the basic community services and which is defined under Section 3(d) of RA No. 9904 as those referring to services and facilities that redound to the benefit of all homeowners and from which, by reason of practicality, no homeowner may be excluded such as, but not limited to: security; street and vicinity lights; maintenance, repairs and cleaning of streets; garbage collection and disposal; and other similar services and facilities; and 3) The homeowners’ must present proof (i.e. financial statements) that the income and dues are used for the cleanliness, safety, security and other services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages.Updates as of this writing reveal that on September 5, 2013, the Regional Trial Court (RTC) of Makati declared invalid RMC No. 65-2012 which subjected a condominium corporation to VAT and income tax. (Calundan, 2013). Moreover, the Court of Tax Appeals (CTA) has just recently ruled that condominium or dues as well as other fees collected from unit owners are not subject to income tax and withholding tax (Dela Pena, 2014).Nevertheless, the Bureau of Internal Revenue (BIR) insisted on collecting taxes on condominium dues on the ground that the tax court’s decision did not touch Revenue Memorandum Circular No. 65-2012 issued in 2012 that imposed the taxes, referring only to old BIR rulings on a related issue. “Since the CTA did not rule on the validity of RMC 65-2012, therefore, it is the prevailing rule today and all concerned taxpayers are required to comply with the provisions of said RMC,” as claimed by Kim Henares, Chief Commissioner of the BIR. (Ramirez, 2014).This paper will deal with a critical analysis of BIR Revenue Memorandum Circular Nos. 65-2012 and 9-2013 and determine their validity or invalidity.